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Defined benefit plan headache: Rule changes boost volatility of pension cash flow
Author(s) -
Campbell John L.,
Schwartz Jr. William C.
Publication year - 2011
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.21721
Subject(s) - pension , legislature , pension plan , legislation , cash flow , volatility (finance) , business , equity (law) , unintended consequences , cash , finance , actuarial science , accounting , economics , political science , law
Abstract Recent legislative changes dramatically increase the annual mandatory minimum pension contributions for firms sponsoring defined benefit pension plans. And the rules have also increased the volatility of firm cash flows. In recent years, many firms have made excess contributions to their pension plans—only to see those efforts erased when equity prices dramatically dropped. Companies were chagrined to again find their pension plans significantly underfunded. An unintended consequence of the new legislation is that managing defined benefit plans is now more difficult than ever. So what is the best strategy now? The authors of this article provide specific guidance to CEOs, CFOs, and treasurers‐to help them decide how best to respond to the new funding regulations. © 2011 Wiley Periodicals, Inc.